Transfer of Undertaking through Court-Approved Scheme Not Taxable as Slump Sale: ITAT Rules S. 50B Inapplicable as Transfer Not result of Sale [Read Order]
The tribunal allowed the assessee's appeal, holding that the transfer could not be characterized as a slump sale within the meaning of Section 2(42C) of the Act as it stood at the relevant time.
Slump Sale - ITAT Rules - Taxscan
Slump Sale - ITAT Rules - Taxscan
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the transfer of Sponge Iron Unit through a court-approved Scheme of Arrangement cannot be characterized as a slump sale under Section 50B of the Income Tax Act, as the transfer was not a result of a sale but effected through statutory sanction of the High Court.
The assessee, Grasim Industries Limited, a public limited company, filed its return of income for AY 2010-11 declaring total income of Rs.1891,64,73,085/-. The assessment was completed on 24/02/2014 determining total income at Rs.2404,70,06,534/- by making various additions. Both the assessee and revenue filed cross appeals against the CIT(A)'s order.
The primary issue concerned the taxability of gains arising from the transfer of the Sponge Iron Unit as a going concern to M/s. Vikram Sponge Iron Ltd. pursuant to a Scheme of Arrangement under sections 391 to 394 of the Companies Act, 1956, sanctioned by the Madhya Pradesh High Court. The revenue treated this as a slump sale under Section 50B and taxed the gains, while the assessee contended it was not a slump sale but a transfer through court-approved scheme.
The two-member bench of Shri Narendra Kumar Billaiya (Accountant Member) and Shri Anikesh Banerjee (Judicial Member) held that for the relevant assessment year, the definition of slump sale under Section 2(42C) was confined to a transfer as a result of sale for lump sum consideration. Following the Bombay High Court decision in Sadanand S. Varde case and Supreme Court precedents, the tribunal observed that once a scheme is sanctioned by the Court, the transfer is effected by force of statute and ceases to retain the character of a consensual or contractual transfer.
The tribunal noted that the essential requisites for a sale - a contract between parties and consideration of money - were absent in this case as the transfer was taking place on account of the Court's imprimatur and not merely on agreement between parties. The subsequent legislative amendments by Finance Act, 2021 and 2022, substituting "sale" with "transfer by any means," only fortify the interpretation that prior to April 1, 2021, the statutory scheme covered only transfers by way of sale.
The tribunal allowed the assessee's appeal, holding that the transfer could not be characterized as a slump sale within the meaning of Section 2(42C) of the Act as it stood at the relevant time. Consequently, the provisions of Section 50B were not applicable, and the consideration received under the Scheme of Arrangement was treated as a capital receipt not chargeable to tax. The addition made under Section 50B was deleted.
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